On July 10, 2025, U.S. President Donald Trump issued a letter to the Canadian Government threatening to impose a tariff on Canadian imports that are non-compliant with The Canada-United States-Mexico Agreement (CUSMA). This represents the most recent development in the ongoing trade war between the U.S. and Canada. The proposed measure would impose a 35% tariff on all goods imported from Canada into the U.S. that are non-compliant with CUSMA, effective August 1, 2025. President Trump cites the ongoing fentanyl crisis and Canada’s alleged role in failing to combat the flow of fentanyl from Canada into the U.S. to engage the President’s authority under the International Emergency Economic Powers Act (United States) (IEEPA) to enact such tariffs.
The proposed tariff increase marks a potentially significant disruption and further uncertainty for Canadian businesses that export to the U.S. The Trump administration has signaled that the breadth of the tariff package will depend on the outcome of ongoing negotiations between Canada and the U.S. From Canada’s perspective, successful negotiations may result in product-specific exemptions and sector-based carve outs on top of goods already protected under CUSMA. However, if talks break down, the U.S. administration may proceed with tariff regime that affects an abundance of Canadian-originating goods entering the U.S.
In formulating the proposed tariffs, the Trump administration has relied upon on national security grounds under IEEPA. Whether this justification could survive legal scrutiny remains to be seen. In addition, Canadian businesses should brace themselves for retaliatory tariffs from the Government of Canada on U.S. goods, which could further complicate cross-border trade dynamics.
As it appears that abrupt governmental actions, including tariffs, between Canada and the U.S. appear to be the new normal for the foreseeable future, some proactive measures that Canadian businesses can take to protect themselves from uncertainty include:
- Assign contractual risks – Canadian business can assign the responsibility of paying for tariffs in their contracts with U.S. organizations to contractual counterparts. This can be done by carefully crafting tax-related terms and conditions that include existing tariffs and any changes to tariffs that come into force after the signing of the contract.
- Contract with domestic parties – As a result of tariff uncertainty, Canadian businesses may choose to do business with organizations within Canada to protect themselves from the risk of fluctuating tariffs. This practice may entail doing business at a price cut to decrease the uncertainty of the transactions. Depending upon where your organization is in the applicable supply chain, this may prove more difficult for some than for others. If this route is chosen, new contracts may need to be drafted to account for the contractual counterparty being within Canadian borders.
- Contract with non–U.S. international parties – Another potential strategy for Canadian businesses facing U.S. tariff uncertainty is to contract with non-U.S. international trading partners. Expanding into markets covered by Canada’s other trade agreements, such as the Comprehensive Economic and Trade Agreements (European Union) or the Progressive Agreement for Trans-Pacific Partnership (Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam), among others, can reduce your organizations reliance on the U.S. market and mitigate the legal and financial risk posed by tariffs. Similar to the preceding risk mitigation strategy for tariff fluctuation, relying upon non-U.S. international trading partners will require carefully crafted contracts to account for international trade dynamics.
Regardless of size, the leading corporate team at MLT Aikins is happy to assist your organization with the effect of any existing or proposed tariffs and help put a proactive risk mitigation strategy in place to protect against the uncertainty of future changes.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
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